Discussion Paper No. 174 of 2014 on Maize Supply Response to Climate Variability and Prices in Kenya

Abstract

The study investigates the effect of climate variables and prices on maize supply in Kenya. Autoregressive Conditional Heteroskedastic (ARCH) approach is used to determine the significance of risk due to climate unpredictability and price volatility with the use of monthly climate data and monthly price data from 2009-2012. An error corrected supply response model was used to determine the effect of risk due to price and climate variables on maize supply. The results significantly indicate that price of maize, mean rainfall, and temperatures have unpredictable changes. This means that maize producers and consumers in Kenya would have some difficulty in making decisions on the most important staple crop. The risk due to temperature is found to be stronger than the risk due to rainfall and prices. There is need to establish systems for monitoring stress indexes related to climate and prices, which can be used for forecasting and scenario analysis. This will enable the prioritization of adaptation strategies based on the rank of the risks.